Diversified Trading Institute

The ES dropped down to 1056.00 as an intraday low.  It climbed back to close at 1122.75. At the end o the day, the market had lost 3.5%, but at one point during the day the ES was down almost 10%.  The big question is how will tradersreact on Friday.  Oddsare there are those who will be reluctant to hold posiions over the weekend.  Normally this woud mean expect the market to fall on Friday, but this could be a dangerous opinion.  Keep in mind that for 1 30 minute time perid there were over a millin trades executed.  And that was when the market dropped to that 10% level.  Actually, the 1056.00 low from Thursday was addressed in last night's blog entry as the lowest close for the year.  So the number itsef comes as no surprise.  It is the speed at which we got there, that is at issue.  Remember though this is a futures market where the first "Price Limit" is at 10%.  It was not that many yeas ago, when it was at 2.5% and 5% respectively.  This is also a market without the uptick rule.  There will be those on Friday who are asking for those tools to be put back in force.  Before we do tha though, lets look at where this market closed.  Down 3.5%, not 5% and not 10%.  In fact, it can be argued, that becauseof the lack of controls, the market down move exhausted itself quickly, and the buyers, or rather the profit takers were able to step back in.  There are questins about how real was this move, and how healthy was this move.  At the end of the day, this may be the healthiest market we have seen all year.  It will need to withstand the panic of traders who only watch the market at 5pm when they get off work, but don't be surprised by a late rally on Friday.  Now that rally could be from significantly lower than we are trading right now.  The important factor here, is that there are two side to this story.  Before making a trading decision I would strongly advise that you look at both the Bullish and the Bearish opportunities.  Make an informed decision as to trading tomorrow.  The Asian markets are lower, but they are moving higher, with ES currently (11:23pm CDT) trading at 1128.50.  That number is much lower than it was 24 hous ago, but much higher than i was 10 hours ago.  In fact, it i above the midpoint of yeterdays range, and more importantly, listen carefully, it is above the open of the year, 1113.75.

 DTI's PreMarket Planner: Daily Opinion

WOW, did you see that?Thursday’s markets were big, and the market has really expanded, but the expectations of a larger range than yesterday, might be a little wishful thinking.  Look for Europe to redefine the market.  We could be looking at two different markets Friday, the first from 2am to 10:30am in line with European cash markets, and the second market will start around 11:00am and then move through the end of the trading week.Here’s the big tip…  Don’t get locked into one view because that is what the market did yesterday.  This is TODAY’s market! 

I've been neglecting my blogging duties for a little while, so here is an update.

Looking back at the first 4 months of the year, maybe the most outstanding issue was how far this market dropped early on.  In Late January and on into February the E-Mini S&P 500 futures (ES) went down to 1040.75.  The lowest close we saw was actually 1056.00 on February 8th.  Now last year the numbers were sterling, you could not write last year any better from our perspective.  The market moved a little lower than our probable low, and it came right up to our probable high.  This year, while it is still early, that quick drop to 1040.75 may have muddied the water.

Generally we do not reveal our yearly predictions to the general public, but lets go ahead and take a look at those numbers.

The market is telling an intersting story, and it may have gotten even more intersting in the past 24 hours.

 

The drop back down in the ES to a close on Tuesday May 4 at 1171.75 could be enough to harness this bull that really took off in April.  The first time the market was able to close higher than 1175.00 ws on the Monday after Easter, April 5, and from that day to this one, we have managed to close every market above that 1175.00 number.  In fact the market rallied u, and on April 23 cosed at 1212.25.  That is the highest close we have seen this year in the ES, ad as you can tell from our numbers above, it was not unexpected. 

The really cool thing about viewing these markets from a common point (open of the year) is that we can see who is strong, who is weak and who is stuck in the middle.

The weak market is the ESX, (Dow Jones Eurostoxx Top 50 Index).  As you can imagine the sovereign debt issues, and the stability of the Euro are weighing on this market.  The strong market is the TF, (Russell 2000 Index).  The Russell is the "small cap" indx,andthe move here seems to indicate if not a thriving economy, perhaps onethat has turned a corner.

The catch is, with the Euro issue, can we trust what the Russell is telling us.  It closed today at 709.0, and that by the numbers indicates strength, the ESX closed today at 2664.00, and that by the numbers indicates weakness.  So we have two diametrically opposed extremes.  Now where does everything else sit.

The closes for the above markets are:

1171.75

10890

1969.75

6033.00

2664.00

709.0

So we have the German DAX Index just keeping above the even lie with the open of the year at 6003.00.  The YM (Dow futures look somewhat strong, and the NASDAQ and the ES closed below a signficant level, but not far below.  Ultimately only time will tell, but these markets are at numbers worth watching, so you have your picture, which is worth 1000 words,and I think that tells the confusion in this market better than I can.

I'll keep you posted, oh, and at DTI we have our Global Economics Night at 9:00pm CDT tonight, come if you can, the password, for the next 3 hours is "tatum".

First of all I want to wish a Happy Birthday to Jenny!

Next, The market has been strong all year, but the abortive rally at the end of the day creates a chink in the Bull's armor.  Watch for this market to have difficulty with the 1148.00 high of the year.  A failed rally from this level could open the market to possible early corrections, and we could change the focus from the newly achieved 1145.00, back down to 1137.00.

DTI's PMP Daily Opinion. 

A break above 1148.00 should send the market up to challenge 1150.00 and 1152.00 before pushing past 1155.00.  A break above 1157.00 should push the market up to challenge 1161.00. We could then see a rally up to as far as 1169.00.Below 1142.00, look for the market to drop down past 1139.00 and challenge 1137.00.  Below that level, the market should challenge support at 1135.00 and 1132.00 before dropping down to 1129.00. 

It's been a while since my last entry.  I must admit, I am a little bit taken aback by what is happening in this mrket.  The truth is I have discussed my January projection in this chat before, butI really did not expect the market to come so close to emulating them.

If you will recall,. our PremiumRailRoad (PRR)for January is based on DTI's years of experience and observation.  We believed that certain numbers would be key to the understanding of this market.  Among those is the obvious choice of the open of the year at 900.00.  The numbers that were not so obvious, but may be now are the support and resistance numbers.  Th picture below was taken in July, when I fist really started discussig these numbers.  The projection was made from January.

The markets powered through the first part of December, moving all the wayup to 1119.00.  Now the fact that we have been within 8 points of our target topside number is not really all that impressive.  Themove may have been occuring a little early, after all there is still the Santa Claus rally to consider.  The market needed to back up a little bit to tone down the chants of too high too fast.  The move on Tuesday back to te open of the month at 1092.75 just before we move into the rollover and expiration time period could be setting up something that has a lot of potential.  On Thursday at 8:30am S&P futures contracts will roll to the March 2010 contract.  Currently that March contract is trading about 5 points below the current contract.

That difference could create a seeming drop in the market, which coud be a "dangerous" (to be read as advantageous) time in the market place.  The Bears will be jumping ahead, saying see we told you so.  The Bulls will be hoping to catch some overconfident Bears.  The market will either break down, and drop low enough to try and challenge the open of the 4th Quarter at 1053.50 or the November low at 1026.00; or they will explode higher to challenge the 1119.00 high of the year.  I expect to see big things in the market in the course of the next week, which to be honest, if these things work out the way they usually do might mean we are in for a boring week.  That being said though, there is definitely potential in this market for it to be anything but boring as the market begins the process of wrapping up 2009.

For the Day:  A break above 1097.50 should challenge the market to move through 1100.00.  Once past 1100.00 the market will once again look at 2, 4, 7, 9, and 12.  In other words, expect resistance at 1102.00, 1104.00, 1107.00, 1109.00, and 1112.00.  On the lower end, a break below 1087.00 could send the market down past 1084.00 and 1081.00.  1084.00 was last week’s low.  Once below 1081.00 look for the market to challenge 1078.00 and 1075.00 before pushing to 1072.00, and then possibly past there to a recent low at 1067.00. 

The new month is starting, and I am back from vacation.  I was looking at the way our December projections would work out with the 1092.75 open of the month, and here is something interesting.  On our annual projections the top three numbers are 1061.00, 1094.00, and 1127.00.  The December open projects support at 1061.00, and resistance at 1125.00.  So to repeat, those three numbers in comparison are 1061.00 and 1061.00, 1092.75 and 1094.00, and 1125.00 and 1127.00.

We are using the same numbers on the PreMarket Planner that we used yesterday, and the resistance numbers are the same as Tuesday.  The market has found resistance at 1112.25.  By the way, 1112.00 was the low of this market in September of 2008.  Many people have noticed that the market has been unable to move above 1112.00, but very fewhave noticed that this market has failed to trade below 1100.00.  In reality, the market has been tightening around a 12 point range. Now, this can get interesting.  Because essentially, the longer a market sits in a tight range, then the greater we can expect a breakout to be.  Essentially, what this means is that the market could be setting up a big move.  Now, what does big move mean?  Many people are looking at this, and hearing the wor big, and looking at least ranges.  In those terms, big could mean 80 points.  In the more recent terms, then a big move could be asmuch as 20 points, or as little as 10 beyone either 1112.00 or 1100.00.  Essentially, the market could be in for a big move that takes the ES below the open of the week at 1092.00, or up to resistance around 1119.00.

A couple of points that I discussed in our 2 hour Night Owl Session.

1. Yes, Key numbers are simple.  Most studies use the numbers in the market and the prices they trade to formulate a calculation in an attempt to show you which number might be important.  Sometimes it is just cleaner to look at the numbers rather than the interpretation of the numbers.

2. Critical Mass: Of note, the 20 Day Average range sits at just under 21 points, and the market closed today 22 points above the open of the week with only 1 day of trading left.  By Definiion, the market is at critical mass going into the end of the week.  What we should expect to see given this condition is an attempt to move this market lower, but if that attempt fails then we could see a snap back rally.

3. CPR = Change as a Percent of Range.  This is the tool I use to determine whether a market is overbought or oversold.  2 items here.  The first and most relevant is that given the current range of the week (1103.25-1065.00: 38.25 points), a move of greater than 19.125 points higher than the open (1084.875) would put this market in an ovebought state.  The second point is that for the year to move into an overbought state, the market would need to close above 1134.00, and everytime the high is pushed past 1134.00 that overbought number moves slightly higher.

Ida is coming through Mobile tonight.  She is looking like a smaller and faster storm than originally anticipated.  Which actually correlates to the market.  Perhaps the rally today afaster, and less strong than anticipated.  If so, we should expect at least a bit of a retracement.  That means the market could move down tomorrow.

Be aware, that a down move is not necassirly a bad thing.  A 50% retracement would find support levels around 1078.00.  If the market is able to hold onto 1078.00, then the up move from Monday could actually be confirmed.  I know that sounds odd.  A market drops from 1092.00 to 1078.00 and we can call it positive?  But the bigger picture is that this market opened the week at 1065.75.  So a cose at 1078.00 is a 14 point drop from Monday's high, but is also a 14 point climb from the open of the week.

DTI's PreMarket Planner, Daily Oinion: If the market can hold at 1087.00, then we could expect a challenge of the 1099.00 high of the year.  If the market fails to hold that support, then we could be in for a rather large retracement.  Look for additional support at 1084.00 and 1081.00 before the market challenges 1078.00 and 1075.00.  On the topside, above 1099.00, the obvious resistance at 1100.00 should be able to be noticed without much comment, but then the market may see some additional resistance around 1107.00 and 1109.00.  This market may have it’s first to challenge the lows of September 2008 before the day is done. 

The big news on Wednesday was the FOMC Announcement which can be found at the following link:

http://www.federalreserve.gov/newsevents/press/monetary/20091104a.htm

The big news for Thursday will be the BOE and ECB announcements.  Include the 7:30am Press conference from Jean Claude Trichet and the ECB, and you have the market surrounded.  Expect a change in the markets.  One more item is DTI's PreMarket Planner, and the daily opinion remains unchanged:

A break above 1047.00 should send the market to challenge 1050.00, and we could then try to climb past the October open at 1053.50.  Beyond that number look for resistance at 1057.00, and then we could challenge 1061.00.On the lower end of this market, a break back below 1037.00 should challenge support at the open of RB4 from Monday, 1034.00, and then at the open of the month, 1031.25.  Once below that level again, look for the market to challenge support levels at 1029.00 and 1025.00, before dropping down to 1022.00. (3rd Edition)